Ans – (c)
One of the tools of monetary policy is the ‘Open Market Operations’
The central bank is authorized to sell the government securities to the public.
When it buys the government securities from the public, against money.
This money increases the cash reserves of the commercial bank.
Now commercial banks can offer more credit to the general public.
Open Market Operations:-
Open market operations (OMO) refer to the buying and selling of government securities by the Central Bank from/to the public and commercial banks.
RBI is authorized to sell or purchase treasury bills and government securities.
It does not matter whether the securities are brought or sold to the public or banks because ultimately the amount will be deposited in or transferred from some bank.
- The sale of securities by the central bank reduces the reserves of commercial banks. It adversely affects the bank’s ability to create credit and therefore decreases the money supply in the economy.
- The purchase of securities by the central bank increases the reserves and raises the bank’s ability to give credit.